European Union Summit Convenes For Second Day

And European leaders worked through the night last night, at a summit in Brussels aimed at tackling the eurozone's worsening debt crisis.

PHILIP REEVES, BYLINE: NPR's Philip Reeves is there and says they've reached an agreement on at least some issues.

Spain and Italy are among the largest economies in Europe. Their borrowing costs have been spiraling towards unsustainable levels. Spain has warned that it can't afford to pay them for much longer.

There's been growing concern that Italy will soon become the sixth eurozone nation to request a bail out.

The Spanish and Italian leaders arrived in Brussels, saying they needed immediate help in lowering those borrowing costs. They made sure they got it.

Negotiations began on a sweltering day and ran through the night. Spain and Italy refused to pass other agenda items until they'd secured a deal. It emerged at around dawn.

HENRY VAN ROMPUY: Ladies and gentlemen, you hear me, yeah?

UNIDENTIFIED MAN #1: Yeah.

UNIDENTIFIED MAN #2: Yeah.

ROMPUY: The micro is on?

UNIDENTIFIED MAN #3: Yeah.

REEVES: A single supervisory body for banks across the eurozone is to be set up by the end of this year. That's seen as an important step towards a European banking union.

The details were announced by Herman Van Rompuy, president of the European Council. They include another measure that's crucial for Spain.

ROMPUY: We agreed on something new, which is a breakthrough, that the banks can be recapitalized directly in certain circumstances.

REEVES: He's talking about a change to the rules that apply to the eurozone's new giant rescue fund. This means this fund can eventually be used to bail out banks directly. The money doesn't have to be channeled through governments.

Earlier this month, Spain secured a European loan of up to 100 billion euros. Though that money's to plug a huge hole in Spanish banks, it was to be added to Spain's national debt. The markets thought Spain, which is in recession, couldn't afford that so they drove up Spain's borrowing costs to dangerously high levels. Europe's leaders hope that won't happen again.

There was success for Italy at the summit too. It wants to be able to borrow from eurozone's bail out fund without submitting to an internationally monitored austerity and reform program, like Greece. Eurozone leaders agreed that countries can now do that - so long as they stick to certain EU budget rules.

The politics of Europe are changing. Until recently, Germany and France were the driving force behind the big decisions. But France is teaming up with its Mediterranean neighbors. The new French president Francois Hollande arrived, promising rapid help for Spain and Italy.

Germany's Angela Merkel is looking increasingly isolated. Merkel emerged from the all-nighter, saying she was happy and that some major decisions had been made.

CHANCELLOR ANGELA MERKEL: (German spoken)

REEVES: Some analysts question that. They say so far this summit's mostly been about short-term fixes and pleasing the markets. Progress on Europe's fundamental problems remains painfully slow.

Philip Reeves, NPR News, Brussels.

MONTAGNE: And last night while those summit negotiations were going on, Italy beat Germany in the semifinals of the Euro 2012 Soccer Tournament. The score was two to one. Italy will face Spain on Sunday. Transcript provided by NPR, Copyright NPR.